
Michael G. JacobidesLondon Business School · Department of Strategy and Entrepreneurship
Michael G. Jacobides
PhD, The Wharton School
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Publications (102)
The assessment of “ecosystem power” has come to occupy centerstage in anti-
trust cases involving large digital firms, as regulators are finding traditional mar-
ket-by-market analysis increasingly inadequate to capture how competition works between firms holding multiple “assets and capabilities”. While antitrust economics is lagging behind in dev...
In 2000, Carliss Baldwin and Kim Clark published “Design Rules: The Power of Modularity,” a book that introduced new ways of understanding and explaining the architecture of complex systems This Special Issue of Industrial and Corporate Change celebrates this seminal work, the research it has inspired, and the insights that these collective efforts...
Digital technologies and modular production methods have led to the emergence of a new generation of global leaders which cement their market position by orchestrating digital platforms and ecosystems of complementors, which offer them new ways to create and capture value that often transcend the boundaries of existing sectors. Their business model...
One of the most profound changes in the industrial landscape in the last decade has been the growth of business ecosystems—groups of connected firms, drawing on (digital) platforms that leverage their complementors and lock in their customers, exploiting the “bottlenecks” that emerge in new industry architectures. This has created new asymmetries o...
We analyze the sectoral and national systems of firms and institutions that collectively engage in Artificial Intelligence (AI). We provide a granular view of the complex interdependency patterns that connect developers, manufacturers, and users of AI. We distinguish between AI enablement, AI production, and AI consumption and analyze the emerging...
We analyze the sectoral and national systems of firms and institutions that collectively engage in artificial intelligence (AI). Moving beyond the analysis of AI as a general-purpose technology or its particular areas of application, we draw on the evolutionary analysis of sectoral systems and ask, “Who does what?” in AI. We provide a granular view...
A surprisingly neglected facet of sector evolution is the evolutionary analysis of firms', and thus a sector's, scope. Defining a sector as a group of firms that can change their scope over time, we study the transformation of U.S. banking firms. We undertake a sectoral, population‐wide study of business‐scope transformation, with particular focus...
The concept of industry architecture (IA) describes how labour is typically organized and structured within an industry (‘who does what’) and which firms capture value and profit as a result (‘who takes what’). It encompasses features such as the degree of vertical integration, the division of labour between firms and the ‘rules and roles’ that det...
Research Summary
The recent surge of interest in “ecosystems” in strategy research and practice has mainly focused on what ecosystems are and how they operate. We complement this literature by considering when and why ecosystems emerge, and what makes them distinct from other governance forms. We argue that modularity enables ecosystem emergence, a...
The concept of industry architecture (IA) describes how labour is typically organized and structured within an industry (‘who does what’) and which firms capture value and profit as a result (‘who takes what’). It encompasses features such as the degree of vertical integration, the division of labour between firms and the ‘rules and roles’ that det...
Research abstractThis paper reviews structural change in the automotive sector from 1997–2007. We find that, following internal framing contests, OEMs led efforts to change their sector's architecture, starting from both strong and weak competitive positions and working with suppliers to advocate a new vision based on modularity and outsourcing. As...
This article revisits the 2008 financial crisis, considering how we can draw on the historical record to reappraise what created the problems and inform theory. It looks in detail at neglected factors such as the nature of the selection environment, the agency of actors, and the influence of structure. On the basis of that evidence, as well as the...
This paper explores the dynamics of value distribution within a sector, using data on the U.S. computer industry as an illustration. It provides exploratory quantitative evidence for the way in which conditions within the segments of a sector's value chain affect the profitability of those segments compared with the sector as a whole. To consider h...
Over the last few years, ecosystems have emerged as an important new area of research, as the likes of Google, Apple and Facebook help transform the nature of competition, linking previously separate sectors and creating broad-ranging webs of firms that both collaborate and compete to add value. Furthermore, it is becoming clear that value is not o...
The last few years, we have seen a rapid increase in the interest on “ecosystems”, “platforms”, and “industry architectures”. Motivated by changes in the nature of the competitive environment, regulatory and technological change, social scientists have sought to find new ways to describe the structure of the “aggregate” level that firms compete in,...
The notion of dynamic or organizational capability has received much attention in the strategy, organizational and entrepreneurship literatures. However, there are wildly divergent opinions about the nature of capabilities, and particularly their origins. The purpose of this proposed panel symposium is to bring scholars together to discuss and deba...
With sectors like telecommunications, media, entertainment but also financial services changing, there is an increasing appreciation of the role of “ecosystems”, sets of collaborating and competing firms which are putting forth value propositions. The upsurge in interest in “ecosystems”, in “multi-sided platforms” and more broadly in the “architect...
This paper revisits the 2008 financial crisis, considering how we can draw on the historical record not only to revisit our understanding of what really drove the problems, but also to help inform theory. It looks at some relatively neglected factors which can be fruitfully documented through historical methods: the nature of the selection environm...
New financial regulation risks being piecemeal. The best regulation will view the financial world as a system and focus on financial intermediaries' business models, argue Michael G. Jacobides, Michael Drexler and Jason R. Rico
The founder of McKinsey's Strategy Practice, a London Business School professor, and a chief strategist turned professor describe pain points and possibilities for strategists on the leading edge.
This symposium aspires to take stock of recent developments in the study of value creation and appropriation in the context of ecosystem. Drawing on the cutting-edge research of senior scholars who have also been active in teaching and in communicating with managers, we consider how the recent upsurge of interest in and understanding of ecosystems...
The purpose of this proposed symposium is to bring scholars together to discuss and debate the origins of organizational capabilities. The question of origins has been a sticky one to resolve, specifically due to the problem of infinite regress and the multi-level nature of capabilities. For example, should explanation of capabilities be reduced to...
This paper examines the dynamics of coordination, looking at the evolution of coordination by rules, norms or standards (which we term “structured coordination”) and by direct interaction (mutual observation and explicit co-adaptation ad hoc which we term “unstructured coordination”). Our model of how coordination costs change over time posits that...
After the financial crisis, have lessons been learned and are our financial institutions now more robust?Michael Jacobides is your guide to the new financial reality.
Our article considers how ‘industry architectures’ (i.e., the stable but evolving set of rules and roles through which labor is divided within a sector) shape success in international expansion. We argue that industry architectures differ between countries, are not necessarily technologically determined, shape firms' capabilities and their competit...
This paper shows how idiosyncratic resources can be the basis of sustained profitability and persistent heterogeneity under competitive conditions: Generic inputs purchased in the market become idiosyncratic resources by investments in customization. Analytically, we show how heterogeneous firms co-exist in equilibrium. Computationally, we show tha...
This paper examines conceptual issues and reviews empirical results bearing on the relationship between research approaches emphasizing organizational capabilities and those based in transaction cost economics (TCE)—or in organizational economics more generally. Following a review of conceptual fundamentals—what capability is and why organizations...
This paper explores the dynamics of value distribution within a sector. It provides exploratory quantitative evidence on how conditions within the segments of a sector’s value chain affect the relative profitability of those segments. We consider how value shifts from one part of the value chain to another by linking two different but causally conn...
What really lies behind the economic fall of Greece?Michael G Jacobides provides administrative lessons from a fiscal tragedy.
Michael G. JacobidesThose who study and plan strategies risk falling into the traps that maps, graphs, charts and matrices present. feels that strategy might best be cast as a dramatic playscript that can reveal the unfolding plots of business far better than traditional strategic tools, as the landscape shifts around us. Michael G. Jacobides
This paper examines conceptual issues and reviews empirical results bearing on the relationship between research approaches emphasizing organizational capabilities and analyses based in transaction cost economics (TCE) or in organizational economics more generally. Following a review of conceptual fundamentals what is capability and why do organiza...
The current downturn was a surprise to many business leaders. Some are still in a state of mental shock. It's time to think in new ways. Michael G. Jacobides says that the study of industry architectures can lead your company out of the recession.
This paper provides an integrative analysis of the drivers of vertical scope, using analytical and computational methods. I propose a model with two vertical segments (upstream and downstream), with firm populations that have heterogeneous capabilities, and an intermediate market subject to transaction costs, where firms can choose whether to be in...
This paper suggests that an unrecognized determinant of global expansion is the structure of the value chain, which is both country- and sector-specific. Value chain structure evolves in a path-dependent, country-specific way. Differences in vertical structures between countries predict the extent to which firms in any segment can export their comp...
Extending Teece's landmark 1986 article, we consider how innovators benefit from value appropriation and creation. We elaborate on value appropriation, first by pointing out the importance of "industry architectures", i.e. sector-wide templates that circumscribe the division of labor; and second, by treating complementarity and factor mobility as d...
This paper clarifies how idiosyncratic resources can be the economic basis of sustained profitability and persistent heterogeneity under competitive conditions. The key point is, generic inputs purchased in the market become idiosyncratic firm resources by virtue of sunk investments in costly customization. This is illustrated in a computational mo...
In this paper, we consider how a better understanding of entrepreneurial activities can help explain how firm and industry boundaries change over time and how a more comprehensive understanding of boundary setting can explain where entrepreneurial activities are directed. We start from the premise that while entrepreneurs believe themselves to have...
Extending Teece's landmark 1986 article, we consider how innovators benefit from value appropriation and creation. We elaborate on value appropriation, first by pointing out the importance of “industry architectures”, i.e. sector-wide templates that circumscribe the division of labor; and second, by treating complementarity and factor mobility as d...
This article considers how ideas from evolutionary theory in general, and Sidney Winter in particular, can be fruitfully combined with ideas from Herbert Simon and the Carnegie tradition on decomposability and cognitive limits. Rather than focusing on any one individual issue, this article outlines a research program on the architecture and design...
This article considers how ideas from evolutionary theory in general, and Sidney Winter in particular, can be fruitfully combined with ideas from Herbert Simon and the Carnegie tradition on decomposability and cognitive limits. Rather than focusing on any one individual issue, this article outlines a research program on the architecture and design...
We thank Martin Kunc for assistance with simulation models.
Focusing on proving or disproving transaction cost economics has led to a relative neglect of some key drivers of vertical scope, such as differences in productive capabilities (as opposed to capabilities of governance). We consider how productive capability differences can shape vertical scope through gains from trade. Using highly detailed data f...
The concept of vertical architecture defines the scope of a firm and the extent to which it is open to final and intermediate markets. A firm can make or buy inputs, and transfer outputs downstream or sell them. Permeable vertical architectures are partly integrated and partly open to the markets along a firm's value chain. Increased permeability e...
Drawing on the Carnegie tradition, this paper examines how the Greek government and its military apparatus handled an incident involving the islets of Imia, which led to a near-war with Turkey in 1996. This came about not merely as a result of escalating circumstances: there were failures in strategic decision making resulting from the organization...
This paper proposes that transaction costs and capabilities are fundamentally intertwined in the determination of vertical scope, and identifies the key mechanisms of their co-evolution. Specifically, we argue that capability differences are a necessary condition for vertical specialization; and that transaction cost reductions only lead to special...
Existing studies, largely based in the transaction cost economics tradition, approach the issue of vertical scope from the point of view of the decision faced by the individual firm about whether to make or buy, given a set of existing markets and well-defined vertical segments. However, recent research has shown that the very ability to make or bu...
This paper suggests that an unrecognized determinant of global expansion is the structure of the value chain, which is both country- and sector-specific. Value chain structure evolves in a path-dependent, country-specific way. Differences in vertical structures between countries predict the extent to which firms in any segment can export their comp...
In a departure from a deterministic stance about the linkages between product, organization and ownership modularity, we present a process model of interface specification. This allows us to point to sources of heterogeneity across organizations in their reliance on modular interfaces and the permeability of such interfaces, and offer insights on w...
This paper provides an inductive theoretical framework that explains how and why vertical disintegration happens, showing that transaction costs are an incidental feature of industry evolution. I find that gains from intrafirm specialization set off a process of intraorganizational partitioning, which simplifies coordination along parts of the valu...
What determines vertical scope? Transactions cost economics (TCE) has been the dominant paradigm for understanding "make" vs. "buy" choices. However, the traditional focus on empirically validating or refuting TCE has taken attention away from other possible drivers of scope, and it has rarely allowed us to understand the explanatory power of TCE v...
We evaluate how changes in information use affect agency relationships. Information asymmetry redistributes value, but imperfect monitoring also encourages agents to take inefficient actions to influence this redistribution, thereby reducing joint agency value. Changing focus, from minimizing principals' costs to maximizing joint agency value, we a...
This paper reconsiders the drivers and implications of vertical scope, in particular by fleshing out currently loose theorizing about capability-driven integration. As the transaction-cost based view cannot fully explain vertical channel choices in our large-scale US Mortgage Banking Database (especially "mixed" production / procurement structures)...
This thesis examines the drivers and competitive implications of changing vertical scope, looking at an industry that has undergone significant “un-bundling” over the last decades, not least because of information technology: mortgage banking. The first chapter contains a business history, looking at how the division of labor in the mortgage value...
The expansion of electronic commerce may be expected to lead to an increase in the volume of agency relationships, such as outsourcing or business partnerships. Using agency theory, this paper concentrates on using information technology to monitor the investment committed to these relationships. Agency value (rather than agency cost) is proposed a...
How does Information and Communication Technology (IT) influence boundaries within and across organizations? Most of the research to date has considered the impact of technologies linking buyers and suppliers, focusing on inter-organizational technology such as electronic markets. Our paper takes a different view, focusing on a firm's overall bound...
Recent research shows that to understand vertical scope we need to combine transaction cost and capabilities to look at all firm's choices in terms of expanding vertically or continuing focused. The main implication is that industry competition dynamics, evolution, and vertical scope should be jointly considered. Yet existing research has not adequ...